Evolution of the Direct Market Part IV

Once Phil Seuling's new distribution system to comics shops got rolling, it
quickly helped comics shops take over new comics sales in whatever region that
they were based. In the early years (1973-1976), however, there were very few
"real" comics shops, so the impact on overall comics sales were minimal. I
doubt, in fact, that there were even 100 stores that were primarily comics
shops during the mid-1970's. Most stores that sold comics had some other
business (such as used books) as their main business, with comics adding only
incrementally to their overall sales.

One bit of historic background that must be remembered during this discussion
is that the comics industry was in dire straits during the period of the middle
1970's. As I mentioned in one of my earlier columns on this subject, the unsold
copies being reported to comics publishers by the traditional Independent
Wholesalers (ID's) who put comics on to newsstands were becoming a huge drain
on cash flow. With printing and paper costs rising precipitously, sales
declining, and large numbers of traditional outlets for comics permanently
closing their doors, the future of the comics industry looked quite bleak.
The publishers responded to declining sales by raising cover prices, but this
had the effect of simply decreasing overall unit sales even further.

It was during this period that I was struggling to keep my four Mile High Comics
retail locations open. I can personally attest to the fact that the Seagate
distribution system kept me from failing during that era. This is somewhat ironic,
as I was not buying through Phil. I was instead working with the ID wholesaler
who controlled the Boulder, Colorado region. This man, Emil Clausen, liked me
very much, and made me an incredible deal. When I told him about the onerous
Seagate prepay policy he sold me my new comics at Phil's same 40% discount, but
then also gave me 30 day billing! This meant that I could avoid having my cash
flow squeezed by having my money tied up endlessly with Phil. In reality, the
exact opposite was true, as Emil gave me such generous credit that I was frequently
getting 120 days to pay my bills. He also gave me the comics one full week before
he put them out for sale in his other accounts, including his own huge newsstand!
Without a doubt, Emil did more to help me in the beginning than any one other
person. I will be eternally in his debt.

In the end, however, I had to switch from Emil over to Seagate. I learned in
late 1977, or early 1978, that Seagate had started setting up regional
subdistributors. These subdistributors were buying from Seagate at a massive
50% discount ( the same discount that ID's like Emil received from the national
wholesalers). I don't know all of the reasons why Phil decided to set up these
subdistributors, but I image that part of the reason was simply to cut down on his
own paperwork. Another good reason to have subdistributors was that Phil's minimum
order requirement per issue was five copies. There were a great many shops who
simply couldn't justify ordering five copies of many smaller titles. By shipping
to one large account in a region, and then allowing that account a 10% better
discount, Phil encouraged the creation of a localized distribution system that could
deal with selling comics in increments smaller than five copies.

The reality of the sub-distribution system is that Phil ran it like a monarchy. He
was the Overlord, and every one of his subdistributors swore allegiance to him.
Some subdistributors were large retailers in the beginning, but as distribution
became more profitable as a result of the inexorable growth in the number of comics
stores, it became common for them to gradually switch their focus entirely over to
distribution.

The situation in Denver was that there were five comics stores (aside from my four)
that were all being serviced by the dealer who controlled what was then the largest
comics store in Denver. This gentleman was very good friends with Phil, at least in
part because they were both of Italian heritage. When I learned that Phil had elevated
him to subdistributors status, and that he was now buying his new books at a 10%
better discount from cover price than I was from Emil (which works out to about 18%
less net cost than I was paying at 40% off) I was very, very concerned. That kind of
price advantage for another company in a competitive situation can be ruinous to your
future. You work just as hard as your competitor, but they earn 18% more on each
dollar sold? Not a good scenario... The irony of the situation was that my four stores
actually sold just about the same amount of new comics as all the other stores in
Denver, combined. Phil wasn't getting my business, however, because Emil was giving
me such a sweetheart deal.

When I finally figured out Phil's subdistribution plan, I asked Emil what I should do.
He told me that there was no way that he could match a 50% discount, since that was
the same discount he received (but with return privileges). He told me that the extra
10% of margin was well worth fighting for, and encouraged me to work out a deal with
Phil. That was far easier said than done, however, as Phil's initial response was a
flat out refusal to make me a subdistributors. He told me that he already had one
subdistributors in Denver, and that was all he needed, even if my purchasing volume
were the same (or greater...) as the other guy's.

Needless to say, that cavalier response irked me more than a little bit. I was only
23 years old at the time, but I had just finished taking a great number of business
and finance classes at the University of Colorado, including one on the evolution of
anti-trust regulations. This background in anti-trust law prompted me to seek out the
advice of one of the largest law firms in the Denver region. I wanted to see if there
was something I could do in order to compel Phil to sell to me as a subdistributors.
Their answer was that I had a good case, but that it would take $50,000, and up to ten
years of litigation, to settle the case in my favor unless I could get the Justice
Department to intervene on my behalf.

Since I had no desire to waste $50,000 of my money (and $50,000 of Phil's money), in
such ridiculous litigation, I decided that I would try a diplomatic solution. I called
up a person I knew who was friends with Phil, and told him exactly what the attorneys
had told me. I then explained that I was still mulling over what to do, but that it
seemed insane to me that so much time and money should be wasted to resolve such a
simple issue. While I didn't exactly ask this man to call Phil, I made it clear that
I needed Seagate to work with me, or that I would have no choice but to meet with the
attorneys again.

The very next day, I received a call from Joni Levas, Phil's girlfriend of the time and
partner in Seagate Distributing. She told me that Phil had reconsidered my request, and
had changed his mind. Effective with the very next month, I was to become a Seagate
subdistributors!